Tesco and Morrisons lose out to discounters as they report sharp falls in sales

Fierce competition from the discount retailers took its toll on two of Britain’s biggest grocers yesterday. Wm Morrison warned on profit and Tesco disappointed with sales at the lower end of forecasts.

Shares in Morrison fell 7.75 per cent and Tesco was down 2.53 per cent after rising numbers of shoppers flocked to Aldi and Lidl for their Christmas food orders rather than the big four grocers.

Morrison, which entered the market late with its convenience format, and makes its first online grocery delivery today, missed targets with a 5.6 per cent fall in underlying sales for the six weeks to January 5. This was well below the 2 per cent fall most had expected, narrowly avoiding a formal profit warning.

Double trouble: Tesco and William Morrison both reported sharp falls in sales after a 'very challenging' Christmas

It was forced to predict underlying profit performance will be ‘towards
the bottom of the range of current market expectations’ which is between
£783million and £853million.

The unscheduled update comes as most of the grocers complain there are
fewer shoppers and they have been spending less over the festive period.
But the problems at Morrison (down 19.7p to 234.5p) went beyond this
and its being under-represented in convenience and online.

It usually benefits from discount shoppers trading up to Morrison in the
run up to Christmas, but this year Aldi and Lidl advertising campaigns
championed quality, which persuaded customers to stay.

Philips
also blamed the retailer’s archaic paper voucher system – whereby
shoppers who collect nine vouchers got £40 off their Christmas shop –
for failing to deliver. He is testing a new loyalty scheme in April
which if successful will be rolled out around the country

Once
convenience and online numbers were stripped out of rivals’ numbers,
comparable sales from Morrison’s supermarkets were more flattering, he
said.

But Graham
Jones, an analyst at Panmure Gordon, said: ‘The weakness of these
results clearly reveals a fundamental weakness in Morrison’s business
model – extending more than just a lack of exposure to convenience and
online.’

Clarke caution: Tesco chief executive Philip Clarke said families feel they have less to spend than they did last year and in previous years

Tesco also disappointed with a worse-than-expected 2.3 per cent fall in underlying sales It has invested £1billion
to kick start growth in its troubled UK market which chief executive
Phil Clarke said was improving but had been ‘masked’ by strategic
changes.

Tesco (down 3.95p to 324p) has been scaling back its store expansion and
replacing low margin electrical goods like televisions for more
profitable non-food items.

Clarke
said: ‘It wasn’t the toughest Christmas I’ve experienced, but the most
different that I can recall. In this prolonged squeeze consumers are
feeling the internet is the way of dealing with it, so back to the
original strategy where we have got to win in the multi-channel world.’

Tesco
expects annual profit to come within the range of current market
expectations of £3.16billion to £3.42billion. It also saw improving
performance in Europe with recent political disruption in Thailand
weighing on Asian performance.